February 19, 2015

The Specter of Japan-Like Stagnation

The following article was originally published by U.S. News & World Report on February 19, 2015. An excerpt is below, and the full article can be accessed here.

The economist Simon Kuznets used to tell his students
that there were four types of countries: developed countries, undeveloped
countries, Argentina and Japan. His aphorism pithily captured Japan as the
positive outlier, the non-Western country that industrialized in one generation
in the 19th century, and rebounded even more quickly after the devastation of
World War II. By the 1980s, Japan was a global economic powerhouse, giving us
Sony, Toyota and Nintendo, pioneering the bullet train and buying up American
real estate. Business leaders the world over scrambled to learn the secrets
behind the country’s success.

But Japan has since lost its luster. Today it may be the
first major economy feeling the full effects of post-industrialization. It has
experienced two decades of little or no real economic growth. With a median age
of 45, its shrinking working-age population struggles to support a growing
number of elderly. Low-cost imports and robotics have slashed the demand for
wage labor. And Japan now suffers from a discernible lack of economic dynamism
as a homogenous society with a rigid work culture that continues to be hostile
to immigration. Ironically, the very characteristics that once made Japan so
successful are now among its biggest liabilities.

Japan’s example serves as a cautionary tale for other
industrialized societies, and Europe in particular.